Risk-Based Decision Making—a tool for effective management

Excerpt from U.S. Coast Guard “Proceedings of the Marine Safety & Security Council” magazine.

Original article written by Mr. Joseph Myers, former risk analyst, U.S. Coast Guard Office of Design and Engineering Standards.

The U.S. Coast Guard has always been in the business of managing risks. A formalized approach began in the late 1990s, when the Assistant Commandant for Marine Safety and Environmental Protection published the first edition of the U.S. Coast Guard’s Risk-Based Decision Making Guidelines.*

Risk-Based Decision Making
Risk-based decision making (RBDM) provides a process to ensure that optimal decisions consistent with the goals and perceptions of those involved are reached. It acts as another source of information, supplying not only the optimal solution, but also insight regarding the situation (including uncertainties involved); objectives; tradeoffs; costs and benefits; and the various assumptions, value judgments, and assessments of the stakeholders involved.

RBDM organizes information about the possibility for any unwanted outcome into a broad, orderly structure that helps decision makers make more informed management choices. Risk communication is facilitated throughout the following steps:

• Establish the decision structure.
• Perform the risk assessment.
• Apply the results to risk management decision making.
• Monitor effectiveness through impact assessment.

Risk Assessment
In establishing the decision structure and assessing the risk, the problem must be described, stakeholders identified, options developed, and influencing factors noted. This step generally answers the questions:

• “What can go wrong?” (hazard identification)
• “How bad would it be?” (consequence assessment)
• “How likely is it?” (probability assessment)

Generally, to complete the risk assessment process, a model of “risk” as the product of “consequence” and “probability” is used. The RBDM guidelines outline a hierarchical concept of risk assessment and risk management, pictured here, to ensure that the level of detail and complexity is appropriate for the situation.

Risk Management
At this phase of the process, the decision maker considers what measures can be implemented to reduce risk, then evaluates alternative risk mitigation strategies, selecting preferable countermeasures and implementing them to optimize risk reduction efforts. The risk management approach relies on two models, the mishap causal chain and the risk characteristic triangle.

The causal chain is a description of how mishaps are generated, propagate, and develop. It provides a powerful tool for developing risk management actions through the graphical description of how mishaps develop. Countermeasures for various risks can then be seen as interruptions in the growth of the potential mishap, placing a break between stages. Risk management measures can be introduced at various points along the error chain to interrupt the disaster. The earlier countermeasures are enacted in the error chain, the more effective and efficient they will be.

Three key characteristics of risk considered for management are probability, consequence, and sensitivity. Sensitivity is used as an indicator of the potential efficiency and effectiveness of risk management measures—hazards with high sensitivity are more manageable than those with low. Risk management is applied to the hazard until the sensitivity decreases to a point where further risk management is not attractive as an option. The sensitivity of a risk to these countermeasures is thus an important factor in prioritizing risk management efforts.

The goal is to reduce risks by lowering the probability and/or decreasing the consequence(s) until their sensitivity to risk management is too low. For example, if a risk is considered high due to a high likelihood, then countermeasures must be developed to prevent the mishap from occurring. Tracing back through the causal chain and implementing countermeasures to stop accident precursors might do this. Similarly, if a risk is considered high due to a high consequence, then measures must be developed to minimize the potential effect or mitigate the consequences.

Impact Assessment and Risk Communication
Impact assessment and risk communication are somewhat unique to the risk management process. The impact assessment is aimed at evaluating the effectiveness of the risk management measures to allow the decision maker to monitor the measures’ effectiveness and improve performance. The goal is to identify if the issue is being addressed and its risks are being reduced adequately.

Because the Coast Guard is also a regulatory agency that deals with the public, risk communication is emphasized heavily in the process to ensure open dialogue, exchanges of information and opinions among individuals, and participation in the process. The intent is to include those affected by the decision as well as those most knowledgable about the issues under consideration. By engaging the stakeholders in the discussion, and using the structured approach of risk assessment and risk management, decisions are more rational and defendable.

About the author:
At the time this article was published, Mr. Joseph Myers was a risk analyst in the Office of Design and Engineering Standards at Coast Guard headquarters. He helped develop the Coast Guard approach to risk-based decision making, and worked to apply risk analysis techniques to myriad issues facing the Coast Guard, including pollution prevention and response, commercial fishing vessel safety, and homeland security issues.

For more information:
*The material in this article was abstracted from the 3rd edition of the U.S. Coast Guard Risk-Based Decision Making Guidelines. Learn more at http://www.uscg.mil/hq/cg5/cg5211/risk.asp and download an updated version of the guidelines at http://www.uscg.mil/hq/cg5/cg5211/E-Guidelines.asp.

Full article and “Risk Management” edition of USCG Proceedings is available at www.uscg.mil/proceedings (click on “Archives” and Spring 2007 edition).

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Direct requests for print copies of this edition to: HQS-DG-NMCProceedings@uscg.mil.